The Exchanges

Q Do you think games companies are undervalued? Maybe when viewed against their counterparts on the social scene, they might be. What are your thoughts?

A Well, I think video games are, And mobile today should be valued against the console gaming industry probably as the best example. And I think if we look at the, when I look at the EBITDA, you know, the trading multiples of the traditional console gaming industries, they're trading at, you know, 12 to 14 X EBITDA. And then you have the mobile gaming companies like, you know, King, for example, got sold for five X EBITDA or six X EBITDA. So there is a huge valuation difference between You know, the quality of revenue, quality of earnings from mobile gaming companies at this point in the marketplace is not valued as, as much. And all of that is just longevity. So for example, if a game made a hundred million dollars of EBITDA or profit this year, and you say, okay, I'll give you a five X multiple because you're a mobile gaming company. And that game actually lasts for the next 15 years. Then, then obviously that, that game is, is under, undervalued. And of course I would, I would go by that. So, but the problem is right now is that There's a broad perception, just as we started this interview, that mobile games only have a very short shelf life. And if that is indeed the case, then of course, the valuation multiples today would be correct. But if we're instead in a world where we're just starting to see mobile games, you know, we're starting to see the beginnings of what will bec…

AI assessment note: “mobile gaming companies today are dramatically undervalued”

Q Compared to Western markets where we like to really onboard into it effectively and then gradually spend?

A It's because the markets mature two different ways. Asia, because of piracy, never had a really large prepackaged gaming business, right? Because there's too much piracy. Whereas in the West, that's how, you know, I grew up and a lot of other people grew up is, you know, you go to the store, you go to your targets and Best Buys and Walmarts and you go buy your favorite game for 60 dollars and then you go play the game for as long as you want. And so the Western players generally have this idea of fairness. I want to play this game. I want to have a level of skill in this game. And occasionally I want to spend some money in this game for things that I really care about, but I want this game to be fair. I don't want somebody who's going to spend thousands of dollars in this game to just come and crush me. So there's a, there's a level of balance. Whereas in Asia, this was thinking that, Hey, I'm going to spend a thousand dollars, 10,000, a million dollars into this game. Of course, I want a huge advantage over other players.

AI assessment note: “It's because the markets mature two different ways.”

Q Compared to Western markets where we like to really onboard into it effectively and then gradually spend?

A It's because the markets mature two different ways. Asia, because of piracy, never had a really large prepackaged gaming business, right? Because there's too much piracy. Whereas in the West, that's how, you know, I grew up and a lot of other people grew up is, you know, you go to the store, you go to your targets and Best Buys and Walmarts and you go buy your favorite game for 60 dollars and then you go play the game for as long as you want. And so the Western players generally have this idea of fairness. I want to play this game. I want to have a level of skill in this game. And occasionally I want to spend some money in this game for things that I really care about, but I want this game to be fair. I don't want somebody who's going to spend thousands of dollars in this game to just come and crush me. So there's a, there's a level of balance. Whereas in Asia, this was thinking that, Hey, I'm going to spend a thousand dollars, 10,000, a million dollars into this game. Of course, I want a huge advantage over other players.

AI assessment note: “It's because the markets mature two different ways.”

Q believes that we'll see a Godzilla game emerge over the next five years. I'm intrigued. What's your take on kind of the rise of this mega, mega game and mega gaming brand? And then kind of consequently, as a result of that, is gaming already, as you said, not pretty ancient prohibitive in terms of the incumbency advantage of high cax and a lot of resources going into getting them?

A So I absolutely agree with Ben Holmes. I think, you know, I've been in the gaming industry for about seven years. And in those seven years, because our company emerged with New platforms like Facebook and smartphones. Over and over again, we've seen games hit astronomical new heights that people never thought were possible. So let me give you an example. So when the iPhone first came out, the idea that a game would sell a hundred million, that would have a hundred million people play it and make a hundred million dollars. Nobody thought that would be the case. And then Angry Birds came and blew those numbers away. Angry Birds eventually got, I think, up to about five million downloads at their 99 cent You know, sort of level. So that was a game that made half a billion dollars and had over half a billion people, you know, play that game. And you say, oh my gosh, there will never be another Angry Birds again. And then Candy Crush comes out. And Candy Crush is a game, I don't know the exact stats because it's broken up between three different games now, but Candy Crush is probably a game that is at a billion plus downloads. And from a revenue perspective, it's in the multi-billions and it's still going very, very strong today. And then you have, and you say, oh my gosh, that will never happen again. And then you have a game like Clash of Clans come out or Clash Royale comes out t…

AI assessment note: “Over and over again, we've seen games hit astronomical new heights”

Q believes that we'll see a Godzilla game emerge over the next five years. I'm intrigued. What's your take on kind of the rise of this mega, mega game and mega gaming brand? And then kind of consequently, as a result of that, is gaming already, as you said, not pretty ancient prohibitive in terms of the incumbency advantage of high cax and a lot of resources going into getting them?

A So I absolutely agree with Ben Holmes. I think, you know, I've been in the gaming industry for about seven years. And in those seven years, because our company emerged with New platforms like Facebook and smartphones. Over and over again, we've seen games hit astronomical new heights that people never thought were possible. So let me give you an example. So when the iPhone first came out, the idea that a game would sell a hundred million, that would have a hundred million people play it and make a hundred million dollars. Nobody thought that would be the case. And then Angry Birds came and blew those numbers away. Angry Birds eventually got, I think, up to about five million downloads at their 99 cent You know, sort of level. So that was a game that made half a billion dollars and had over half a billion people, you know, play that game. And you say, oh my gosh, there will never be another Angry Birds again. And then Candy Crush comes out. And Candy Crush is a game, I don't know the exact stats because it's broken up between three different games now, but Candy Crush is probably a game that is at a billion plus downloads. And from a revenue perspective, it's in the multi-billions and it's still going very, very strong today. And then you have, and you say, oh my gosh, that will never happen again. And then you have a game like Clash of Clans come out or Clash Royale comes out t…

AI assessment note: “I absolutely agree with Ben Holmes. I think, you know, I've been in the gaming”

Q very precise infrastructure built around it. I think, I don't know about you, but I think at the moment, kind of, the publishers don't take enough of the pie as they will want to take in the future, and I don't think there's enough monetization mechanisms built around the brands, the TV rights, and the player rights as there, as there could be, and potentially should be. Do you agree?

A You know, I, I think that'll come. So that is something that I'm less, you're absolutely right in the state of the market today. There's some of that infrastructure is not quite, there are But there's actually a lot of money being put into this, and the companies that are able to run esports, whether it's League of Legends, Activision, EA, Microsoft, these are all very deep-pocketed companies and are incredibly profitable, and the games themselves that led themselves to esports are incredibly profitable. And so the idea of getting the media assets and the media structure and the licensing structure and the franchise structure is all right. That'll come. As long as there is a fan base that kind of continues to persist and can, you know, become a business like the way that a traditional sport is. And I think the thing, actually, the thing that's really missing there is the longevity of the players, I think is probably the first and foremost thing. Because right now, if you ask, you know, a fan of any of these games that are esports, who's your favorite player in the world? You know, a few of the really hardcore players will be able to name a few names, but we're still not at a point where our You can go pull, you know, five million players and get their favorite players. Whereas if you go ask people who their favorite NFL player is, their favorite NBA player is, their favorite ba…

AI assessment note: “you're absolutely right in the state of the market today.”

Q When can we turn on the cash tap?

A When can we turn on the cash tap? I mean, I think, you know, it's, it's truly a great balance. I do believe that these days, by Far and away, the most important thing is to get the long-term retention, right? And you can screw that up in the early days through monetization, at least in the Western markets. Now, what makes gaming such an interesting marketplace is that in the Asian markets, the consumers prefer to spend really quickly in the game. And if you don't provide them interesting ways to spend early enough, at least in the China market, for example, and sometimes we see this in the Korean markets, the other players will turn out because they just think, okay, there's nothing interesting for me to spend money on.

AI assessment note: “in the Asian markets, the consumers prefer to spend really quickly in the game.”

Q Is, is that transferability of games themselves? Or do you have to complete, uh, create completely alternate games for the different markets?

A It is true today. I'm not sure. I think there is more and more of a convergence over time. You know, meaning that the Western players are getting a little bit more okay with somebody who, You know, spent a lot of money having some, you know, real advantages in the game. And then the Chinese players and the other Asian players, they actually want more fair games. And so e-sports, which is a whole segment of gaming where there's no monetary spend possible for a competitive advantage in the gameplay, that's becoming incredibly popular in Asia. So I think in another five to 10 years, you're going to see, you know, games cross kind of east to west a lot more. But today we're still in the kind of second inning of You know, kind of a global marketplace for free-to-play games, which is not possible even five years ago, and so I think there's a lot of really interesting things happening in the market right now, which makes for a dynamic industry.

AI assessment note: “I think there is more and more of a convergence over time.”

Q And then one from Alexis Bonte at eRepublic. He asks, what was the reason behind selling?

A You know, I think in the mobile gaming space today, there's not as many big opportunities for entrepreneurs as there was when I first started business seven years ago. When I first started in gaming seven years ago, I had never created a video game before. I'd never been in the video gaming industry. I've grown up a video game player since I was very small. And, and I felt, wow, this is such an exciting time because there's new platforms with Facebook and mobile coming online. And there's more importantly, there's a new business model with free to play and how little understood free to play was, uh, by traditional game designers. We're now at a point where mobile is clearly the platform. As I talked about VR AR, I think we're still several years away from that becoming a big business for the game developers. And so There's a wave of consolidation with Supercell and King and some of the other, you know, big mobile gaming companies being acquired. And I think it just makes sense right now for there to be consolidation in the industry and to partner up with a much bigger company to, uh, continue growing the business. I think it's going to be harder and harder for the smaller independents to, to have a breakout hit.

AI assessment note: “makes sense right now for there to be consolidation in the industry and to partner up”

Q When can we turn on the cash tap?

A When can we turn on the cash tap? I mean, I think, you know, it's, it's truly a great balance. I do believe that these days, by Far and away, the most important thing is to get the long-term retention, right? And you can screw that up in the early days through monetization, at least in the Western markets. Now, what makes gaming such an interesting marketplace is that in the Asian markets, the consumers prefer to spend really quickly in the game. And if you don't provide them interesting ways to spend early enough, at least in the China market, for example, and sometimes we see this in the Korean markets, the other players will turn out because they just think, okay, there's nothing interesting for me to spend money on.

AI assessment note: “most important thing is to get the long-term retention, right?”

Q Is, is that transferability of games themselves? Or do you have to complete, uh, create completely alternate games for the different markets?

A It is true today. I'm not sure. I think there is more and more of a convergence over time. You know, meaning that the Western players are getting a little bit more okay with somebody who, You know, spent a lot of money having some, you know, real advantages in the game. And then the Chinese players and the other Asian players, they actually want more fair games. And so e-sports, which is a whole segment of gaming where there's no monetary spend possible for a competitive advantage in the gameplay, that's becoming incredibly popular in Asia. So I think in another five to 10 years, you're going to see, you know, games cross kind of east to west a lot more. But today we're still in the kind of second inning of You know, kind of a global marketplace for free-to-play games, which is not possible even five years ago, and so I think there's a lot of really interesting things happening in the market right now, which makes for a dynamic industry.

AI assessment note: “games cross kind of east to west a lot more. But today we're still”

Q intrigued as a newly minted VC. Talk to me, Kevin. How do I determine metrics-based? What makes a good investment opportunity and a good game? Is it, what am I supposed to be looking for? Is this ninety-day retention? Is this DAU? Is this MAU? What are the metrics that you specifically honed in on at Kabam to determine the success, and would you advise me to in the future?

A So, so gaming is a highly unusual type of experience, meaning that if you're using a social network or a photo product and you're highly engaged in the first, you know, few weeks You know, month, you're likely to be a highly engaged user of that product for another, for a very, you know, for a much longer time, and every company can figure out what that cohort looks like. Gaming is this really weird, you know, software product for consumers, which I may have you highly engaged with my game for the first two weeks, two months, and then all of a sudden something happens to you in the game where you just quit the game immediately, right? And so it's not, it's not like a photo, you know, service or a social networking Gaming service or travel service where you kind of like regularly use it and there's a utilitarian aspect that could be understood and then model it out easily. Gaming has this really weird, you know, life cycle for games. So we've developed, so this is something I've been struggling for, for seven years to, to try to figure out, okay, what is it, what's going to predict a player's penchant to play this game ideally for years and years and looking at day one, day seven, day 30, day 90, day one 80, day 365, none of these metrics. Really tell the right, you know, story, nor does looking at DAU, and certainly not MAU. So some of these kind of common metrics that other ki…

AI assessment note: “none of these metrics. Really tell the right, you know, story, nor does looking at DAU”

Q intrigued as a newly minted VC. Talk to me, Kevin. How do I determine metrics-based? What makes a good investment opportunity and a good game? Is it, what am I supposed to be looking for? Is this ninety-day retention? Is this DAU? Is this MAU? What are the metrics that you specifically honed in on at Kabam to determine the success, and would you advise me to in the future?

A So, so gaming is a highly unusual type of experience, meaning that if you're using a social network or a photo product and you're highly engaged in the first, you know, few weeks You know, month, you're likely to be a highly engaged user of that product for another, for a very, you know, for a much longer time, and every company can figure out what that cohort looks like. Gaming is this really weird, you know, software product for consumers, which I may have you highly engaged with my game for the first two weeks, two months, and then all of a sudden something happens to you in the game where you just quit the game immediately, right? And so it's not, it's not like a photo, you know, service or a social networking Gaming service or travel service where you kind of like regularly use it and there's a utilitarian aspect that could be understood and then model it out easily. Gaming has this really weird, you know, life cycle for games. So we've developed, so this is something I've been struggling for, for seven years to, to try to figure out, okay, what is it, what's going to predict a player's penchant to play this game ideally for years and years and looking at day one, day seven, day 30, day 90, day one 80, day 365, none of these metrics. Really tell the right, you know, story, nor does looking at DAU, and certainly not MAU. So some of these kind of common metrics that other ki…

AI assessment note: “none of these metrics. Really tell the right, you know, story, nor does looking at DAU”

Q Can I ask, touching on the monetization aspect there, what's your views on, on monetization successfully within the gaming sphere? When you, you said about kind of seeing the rise of free to play when you entered with Kabam, what's your take now on the current state of the gaming industry and the current models in play and where your preferences lie?

A So what I think is happening right now is that consumers are finding games that they get incredibly deeply engaged with. And they're engaged with it because the content's interesting, but more importantly these days, it's because they find a community, a social, basically a social community that they really enjoy hanging out with. So when we build games that are, some of our games have become very successful. People play our games as much for hanging out, talking, and catching up with the other players that they've come to play the game with as much as it is about the game itself and the content that we design as a company. And I would say this has been The mega trend over the last few years that is not talked about very much, but I would say the top companies are all very focused on this right now, which is this idea of how do I make my game experience highly social? How do I get my players actively engaging and interacting with other players in the same skill set range, in the same engagement, you know, range, meaning I'm a player that loves playing two hours a day. So I want to find other people who play about two hours a day. I don't want to play with people who only want to invest 10 minutes a day into this game, nor do I want to play with the player who's Playing eight hours a day in this game because that guy is way too hardcore. I want to find somebody who's around my s…

AI assessment note: “consumers are finding games that they get incredibly deeply engaged with.”

Q Can I ask, touching on the monetization aspect there, what's your views on, on monetization successfully within the gaming sphere? When you, you said about kind of seeing the rise of free to play when you entered with Kabam, what's your take now on the current state of the gaming industry and the current models in play and where your preferences lie?

A So what I think is happening right now is that consumers are finding games that they get incredibly deeply engaged with. And they're engaged with it because the content's interesting, but more importantly these days, it's because they find a community, a social, basically a social community that they really enjoy hanging out with. So when we build games that are, some of our games have become very successful. People play our games as much for hanging out, talking, and catching up with the other players that they've come to play the game with as much as it is about the game itself and the content that we design as a company. And I would say this has been The mega trend over the last few years that is not talked about very much, but I would say the top companies are all very focused on this right now, which is this idea of how do I make my game experience highly social? How do I get my players actively engaging and interacting with other players in the same skill set range, in the same engagement, you know, range, meaning I'm a player that loves playing two hours a day. So I want to find other people who play about two hours a day. I don't want to play with people who only want to invest 10 minutes a day into this game, nor do I want to play with the player who's Playing eight hours a day in this game because that guy is way too hardcore. I want to find somebody who's around my s…

AI assessment note: “consumers are finding games that they get incredibly deeply engaged with”